Thursday, January 29, 2009

Another bail-out is taking shape...but what's in it for me?

Yesterday the House of Representatives passed H.R. 1, The American Recovery and Reinvestment Act of 2009 by a 244 to 188 vote. Zero Republicans voted yes and 11 Democrats voted no. It still needs to get through the Senate, and, if passed, will likely be tweaked along the way. But as it stands right now there are a couple of positive pieces that stand out to me as a San Diego Realtor.

The first is the bill's measure extending all 2008 Metropolitan Statistical Areas’ (MSAs’) Fannie Mae, Freddie Mac, and FHA loan limits through the end of this year.

Huh? English please.

Loan limits have traditionally been insured by the government up to $417,000 (referred to as "conforming"). Because they are government insured they are seen as less risky to banks and, therefore, carry lower rates than higher balanced loans. In higher cost areas, like San Diego, loan balances tend to be higher than in areas like, say, Ohio where most home loans are under $417,000. So last year the government created a new temporary limit in higher cost areas based on the median priced home in that particular area with a maximum limit of $729,750.

On December 31, 2008 that limit expired and was reduced to $625,500. The new stimulus bill seeks to reinstate those 2008 limits through the end of 2009. This helps home owners in San Diego, and other high cost areas, with refinancing. It also allows more homes to be sold in higher cost markets, which benefits both buyers and sellers alike. If this sounds like a pretty logical idea to you (higher cost areas = higher insured loan limits) then I'm sure your next question is "Shouldn't this be a permanent increase?" Well, logical people like you and me say "Yes it should!"

The second measure in the bill that stood out to me was eliminating the repayment requirement on the first-time home buyer tax credit for qualified buyers who purchase a home between Dec. 31, 2008, and July 1 2009. If you're asking, "Huh? What $7500 first-time home buyer tax credit?" you are not alone. I think a lot of people are unaware of this recent (and again, temporary) tax credit. So if you are one of these people you can read more about it here.

The big deterrent to getting more first-time buyers into the market with this tax credit is the fact that it has to be re-paid. So eliminating the repayment feature would be one really good step. Another would be to extend it all the way through the end of 2009 (hint, hint if anyone from the government is reading this blog).

Although I think both of these provisions are a step in the right direction, the major thing that I think needs all of our government's immediate attention is the second half of the original $700 billion stimulus bill...That, so far, has been about as stimulating as a weak cup of decaf. I thought the point of injecting $350 billion into the banks was to get them to lend, no? Seeing as how no one (not the banks or the treasury department) can really account for what was actually done with the first $350 billion, I would hope there would be a few more restrictions and requirements put on the second $350 billion.

As National Association of REALTORS® President Charles McMillan sums this all up, "We think this bill is a great first step in helping our economy on the road to recovery. It is also important that Congress and the new administration refocus the use of Troubled Asset Relief Program dollars to add liquidity to the mortgage market and make mortgage loans and other loans more available to America’s working families.”

To which I say, "Amen!" He must be reading my blog!

2 comments:

  1. See there? What you did? You just addressed the question that has been rolling around in my mind. Where is all this bailout money really going? If banks are foreclosing and similar all over the place, who is benefiting from the bailout?

    Thanks for another excellent post.

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  2. Michael,

    I really enjoy the blog. Nice summary too on the newly proposed stimulus bill. i hear they're floating around the idea of upping the tax credit to $15,000 along with removing the repayment feature.

    sean m.

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